An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Maturity of zero coupon bond b. What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face value Market value years million million

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat
at 10%.
a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond
must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.)
Maturity of zero coupon bond
b. What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your
answers in millions rounded to 2 decimal places.)
Face value
Market value
years
million
million
Transcribed Image Text:An insurance company must make payments to a customer of $10 million in one year and $4 million in five years. The yield curve is flat at 10%. a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Maturity of zero coupon bond b. What must be the face value and market value of that zero-coupon bond? (Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places.) Face value Market value years million million
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